Retirement Benefits and Divorce, Concluding Thoughts

Posted on Jun 27, 2018 6:00am PDT

As long as we’re talking about one unpleasant subject, namely divorce, we may as well talk about another, namely death.

A good question to ask yourself is what happens to your share of the retirement benefits awarded to you under your spouse’s retirement plan if he or she dies before your share is paid? Do you actually get to receive the portion awarded to you or does it somehow revert back to your spouse’s estate?

A lawyer’s favorite answer to provide to a question is: It depends. That answer is unfortunately applicable here. Look to see if your Qualified Domestic Relations Order (QDRO) provides some type of protection for you in the event that your ex-spouse passes away before your benefits are fully paid or made available to you.

Sometimes your attorney can insert this language into the QDRO on their own. Other times, it will be preferred language that the retirement plan administrator requests to be included. Either way, this type of language can save you in the event that your ex-spouse passes away.

If the reverse should unfortunately occur, and you pass away prior to receiving all of the benefits awarded to you in your divorce, the same questions are relevant. Would your ex-spouse get all of those benefits that you would normally get?

Does the pension or retirement plan get the benefits instead? If you are thinking about including language in your will to pre-designate a recipient for the money in the event that you do pass away there is no way to do this, sadly. You and your lawyer will need to discuss this in greater detail prior to the conclusion of your divorce.

Delay in receiving benefits means interest on the amount awarded to you in the divorce?

Sometimes there are issues when it comes to getting a QDRO approved by a plan administrator and your payments are not made as timely as you would have liked. While these mistakes are typically avoidable if your attorney is proactive and drafts the QDRO according to the guidelines set forth by the administrator, there may be unforeseen issues that arise that cause you to lose time.

We see this happen when it comes to clients who receive shares of 401(k)s or other plans like these. If you receive a percentage of the money in the fund it could be some months before you receive payment of your sum even if everything was done correctly by your attorney. To make up for this delay, you may want to ask for a share of any earnings on the money or interest to be paid that your spouse receives on the portion of funds that was awarded to you in the divorce. This can be done while your portion is still within the plan itself.

What to do if your spouse has taken out a loan from their retirement account?

401(k)s typically allow people to take out loans from their retirement plans by either deducting the loan from the either your portion of the account or theirs. If you have been awarded a portion of that 401(k) then you will need to consider what reason your spouse took out the loan.

Texas is a community property debt and therefore debt is part of the estate if taken out during your marriage. However, if the purpose of the loan was to benefit something of your spouse’s and had little effect on you it is likely that the loan would be made a part of your spouse’s share of the debt-load.

Taxes while dividing up a retirement account

If you have been awarded a portion of your spouse’s retirement account in your divorce it is likely that this portion will be considered taxable income.

However, a savvy person like yourself can avoid paying taxes on this money immediately by rolling it into an IRA or into your own 401(k). Under this scenario, you would only owe taxes once the money is withdrawn from the IRA or 401(k).

A final checklist for your consideration

Before we conclude our series of blog posts on retirement plans and divorce let’s go over the most important points that you should consider prior to finalizing any divorce involving retirement benefits:

Make sure a QDRO has been drafted according to the plan specifications for your particular retirement plan. The judge will need to sign off on the order prior to submitting it to the retirement plan for review.

Your attorney should have been in touch with the plan administrator prior to submitting the QDRO to ensure that their guidelines are followed. This will help speed up the review and submittal process.

When your Final Decree of Divorce has been drafted, reviewed and signed by all parties submit it to the court for the judge’s signature. You should include your QDRO and a Motion to Enter QDRO. Ask the clerk of your court for the particulars on how the judge prefers this step be handled.

Once the QDRO is signed by the judge make sure that your attorney sends it into the plan administrator immediately. The faster this is done, the faster it can be approved and you can start to receive whatever shares of the retirement fund that you are entitled to.

Ask questions of your attorney throughout your divorce

If there is something that you don’t understand or you haven’t heard from your attorney in regard to retirement please make sure to contact his or her office to set up a time to speak to him or her. An engaged client is one who gets what he or she wants, typically speaking.

Remember this and you will have much more tolerable divorce experience.

Questions about retirement and your divorce? Contact the Law Office of Bryan Fagan

Our licensed family law attorneys are available six days a week to meet with you in a free of charge consultation. We can address your questions and provide you with helpful information that can assist you as you begin your divorce.

Law Office of Bryan Fagan | Houston, Texas Divorce Lawyers

The Law Office of Bryan Fagan routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.

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